3 best technology shares for 2016

Conditions are perfect for growing stars like XERO FPO NZ (ASX:XRO) and Senetas Corporation Limited (ASX:SEN).

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There was no stopping technology stocks in 2015. And as Motley Fool writer Mike King pointed out here, technology could be the next big boom for the economy.

For the year ahead there are three companies I think should be at the top of your technology-stock ‘buy’ list.

1. XERO FPO NZ (ASX: XRO)

With well over 400,000 subscribers across Australasia and New Zealand, there is a good chance you know someone using Xero cloud accounting software. Xero is still growing at impressive rates and 2016 is set to be another big year.

Earlier this year I argued that Xero has many hallmarks of a ‘rule breaker‘ company and the share price has changed little since then. Don’t be put off by the negative earnings; each new subscriber comes with years of future value from repeat payments.

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Subscription revenue is set to pass NZ$200 million for the 2016 financial year (12 months to 31 March, 2016) which will represent growth of 65% on the prior 12 months.

Growing sales in the U.S. market will be a key priority for Xero in 2016 and the company is still intending to list in the U.S. when the time is right.

2. Senetas Corporation Limited (ASX: SEN)

Senetas Corporation makes data encryption hardware and had a great year in 2015 growing revenue 47% for the full year to 30 June, 2015.

Shares jumped 200%, but in my view are still reasonably priced for the likely growth to come. The high profile hacks of Sony and Ashley Madison have reinforced the importance of protecting sensitive data and Senetas Corporation offers a quality solution.

The company doesn’t pay a dividend, but operates at a significant gross profit margin (83%) and produces a profit. The focus for 2016 will be on international growth through its important partnership with Dutch data security firm Gemalto NV.

3. Gentrack Group Ltd (ASX: GTK)

My third top tech pick for 2016 is Gentrack Group Ltd (ASX: GTK), a more defensive, dividend-paying company which develops billing systems for utilities like water, gas, electricity and airport companies.

Although based in New Zealand, almost 75% of revenue comes from international sales and Gentrack expects to continue growing in the U.K. as deregulation of water utilities opens up new opportunities.

Gentrack’s focus is on organic growth – it grew revenue 9% for the 12 months to 30 September 2015 and contributes to a compounded annual growth rate (CAGR) of 10.2% for the last five years.

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Heading into 2016 Gentrack expects to maintain revenue growth of around 10%, while also heavily investing back into the business.

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*Returns as of January 12th 2022

Motley Fool contributor Regan Pearson owns shares of GENTRACK FPO NZ and Xero. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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